The chance is high that you are working for a company which has an annual performance management cycle trying at best to achieve 2 things: reward the really strong performers through merit and bonus attributions and secondly document a development or performance improvement plan for those not in that category. The chance is also high that 80% of the employees are demotivated through the process, disillusioned in its fairness and outcome but above all disengaged. What is also certain is that the process paralyses the company for the better of 4 months, let alone the HR department being very busy with being very busy.
There are multiple reasons why the annual performance management process dissatisfies most stakeholders. First and foremost, the business value is questionable. Do companies make more profit through this tool? Do people actually work harder, even though they know they will never be the top performer receiving a mega-bonus? For 9 out of the 10 people in a team, there is somebody outperforming them, taking the lion-share of the bonus pool. You can argue number 2 or 3 may compete, but number 4 to 9, which is half of the team, is disinterested from the start. Let alone number 10: most of them know halfway through the year that there won’t be a merit or bonus, let alone a job.
Secondly, all individual annual performance management systems sin heavily against common company values, like team collaboration and innovation. Promoting individual performance in today’s work environment puts every team member in competition with each other while the team/company is dependent on the successful collaboration of these same team members. The fact that this is counterproductive and illogical doesn’t seem to bother most managers. What is even more worrying is that this stifles sharing of knowledge and therefore stalling innovation, which is crucial for the wellbeing of the company.
Moreover, business and people do not act in years. Businesses go through cycles, just like products. Variable reward, where it makes sense, should mirror that cycle as closely as possible. If the cycle is 3 months, so should the performance management process be. If the cycle is 5 years, idem ditto. Still, the added value of having a performance process might not be there. What is sure is that the one size fits all approach does everybody wrong.
Performance through people is a people issue, not a budget cycle. People only perform when they are engaged. Engagement comes when their hearts and minds are correctly addressed. Motivation and commitment will never be the result of a performance management process. People need a cause to perform. Performance is driven by emotions as much as reasons. Companies need to deserve performance. Just paying for it reduces the employee to a mercenary and the company to a system to make money.
Also, by its very nature, the annual performance management process looks primarily at the past, not the future. Influencing and changing the future should however be the focus of any management action. Strong managers facilitate future performance by checking-in on a daily basis, by coaching and caring, by creating space for the employee to perform, by allowing them to learn along the way, by relinquishing command and control. With trust, scope and accountability, 90% or more of the employees live up to great performance. You don’t need an annual review paralysing the company for months to single out the few exceptions.
Today, when most of the work in Europe is think-work, not by an individual but by a network of people transgressing team and company boundaries, individual performance reviews are redundant. The network itself will deselect the non-performing elements. You don’t need a manager or a bureaucratic process to address this issue. Just let the network decide.